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Norwegian Ships Could Fly UK Flag To Avoid New Tax

by Ulrika Lomas,, Brussels

27 September 2007

Some of Norway's largest shipping companies have threatened to reflag their vessels in other maritime jurisdictions such as the UK, in a bid to escape a new tax regime that they say could cost them billions of dollars in back taxes.

According to a report in the UK's Daily Telegraph, the Norwegian tanker operator BW Gas has already begun to explore the tax consequences of re-domiciling its business outside of Norway.

"We've had the HSBC tax team looking at it," Andreas Sohmen-Pao, the company's vice-chairman was quoted as revealing, adding that there has "never been a precedent for something like this".

Shipping companies in Norway, which has one of the world's largest merchant fleets, are outraged at the proposals to change their tax system from one based on profits to one based on the tonnage capacity of a company's fleet. While the tonnage tax system is commonly used by governments throughout the European Union, including the UK, to tax the maritime sector, Norway's shipping companies say the switchover would mean that income exempted from tax under the current system would become taxable. Under the present system, no tax is levied on operating profit unless taxable dividends are paid to shareholders, or assets are moved out of Norway.

BW Gas, a leading global provider of gas marine transportation services, says that, depending on the transition rules of the new system, it could pay between NOK3.8 billion and NOK4.8 billion (US$668,400 and US$844,300) in back taxes. Norwegian shippers have warned that the proposal will ultimately cost them up to US$2.4 billion in back tax bills, hitting their profits, throwing investment plans into chaos and impeding their ability to compete internationally.

The new system will be presented on October 6, 2007 as part of the the 2008 fiscal budget, and is expected to be ratified later in the year, provided Parliament approves the budget.

According to a survey by the Norwegian Shipowners' Association, 75% of the tax due will be paid by about 30% of the country's shipping firms. However, it predicts that small shipping companies are likely to be hit just as hard as larger firms, and will have to undergo costly refinancing. The NSA also expects that the new system will lead to lower tax revenues.

“It is worrying that the tax burden on many companies will be far higher than if they were taxed like others," the NSA stated. "The proposal erodes confidence in Norway as a host country for value creation."

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